In the bustling trade fairs and wholesale markets of China, the mention of Donald Trump’s name often evokes laughter rather than fear. The former U.S. president’s imposition of up to 145% tariffs on Chinese goods has not deterred many Chinese traders. Instead, it has inspired a wave of nationalistic memes and AI-generated parody videos featuring Trump, Vice President JD Vance, and Elon Musk laboring on Chinese factory floors.
While the economic confrontation escalates, China projects an image of resilience. President Xi Jinping has repeatedly emphasized that China’s development has always been rooted in “self-reliance and hard work.” Yet, behind the bravado lies a more complex reality. Trump’s tariff war may not have crippled China’s economy, but it has magnified its pre-existing vulnerabilities—from a collapsing housing market to rising youth unemployment and pension concerns.
China's greatest economic test may not be the U.S. tariffs, but its internal downturn. The housing crisis looms large, with countless Chinese families having invested their savings in real estate, only to see property values plunge. Construction boomed even as the market faltered, creating vast "ghost cities"—entire urban landscapes with finished apartments but no inhabitants.
According to He Keng, former deputy head of China’s statistics bureau, extreme estimates suggest there are enough vacant homes for three billion people. The government’s decision to restrict developer borrowing came too late to halt the damage to home prices and consumer confidence.
Additionally, the population is ageing rapidly. Over the next decade, around 300 million Chinese aged 50 to 60 will exit the workforce, placing immense pressure on the pension system, which is projected to run dry by 2035. Meanwhile, young job seekers face grim prospects: official data from 2023 showed that more than 20% of urban youth were unemployed—a figure so concerning the government has since stopped publishing it.
When Xi Jinping came to power in 2012, he promised national rejuvenation and shared prosperity. More than a decade later, the dream appears increasingly elusive. Despite significant investments in childcare subsidies, paid leave, and consumer incentives like the $41 billion stimulus for electronics and electric vehicles, experts like Professor Zhang Jun from Fudan University warn that these measures lack long-term sustainability. “We need a mechanism to increase residents’ disposable income,” he said.
Trump’s tariffs have not only targeted consumer goods but also struck at China's ambitions in advanced manufacturing. Export restrictions on semiconductors—particularly those made by U.S. chipmaker Nvidia—aim to stymie China’s rise in AI, EVs, and battery production.
Yet, China has made impressive strides in these sectors. Companies like BYD, which overtook Tesla as the world’s largest EV maker in 2023, and AI firms like DeepSeek are challenging U.S. dominance. Xi hopes these achievements will help offset external economic pressure.
China is actively seeking new markets beyond the United States. Trump’s earlier trade war prompted a shift in Chinese exports toward Southeast Asia, Latin America, and Africa. The Belt and Road Initiative helped solidify China’s role in the Global South, and today, more than 145 countries conduct more trade with China than with the U.S., according to the Lowy Institute.
Professor Zhang believes this diversification will help exporters weather the latest storm. "Chinese companies will take the initiative to adjust the destination of exports," he said.
However, this shift is not without complications. Chinese goods redirected from the U.S. have flooded regional markets before, particularly in Southeast Asia, causing trade imbalances and sparking friction with local producers.
Xi has also sought geopolitical gains from Trump’s aggressive trade policy, casting China as a stable alternative to U.S. unpredictability. His recent visits to Southeast Asian nations suggest an effort to reassure neighbors and secure trade relations.
Yet, China’s own track record may undermine its outreach. In 2020, after Australia called for a COVID-19 inquiry, China responded with tariffs and import bans, straining bilateral ties. Such actions complicate Beijing’s image as a champion of free trade.
While tensions rise, China seems prepared for a protracted standoff. Xi is betting that Beijing can endure more economic pain than Washington in this strategic tug-of-war.
Interestingly, Trump recently hinted at a potential reversal, suggesting that tariffs on Chinese imports might "come down substantially." On Chinese social media, this was met with mockery and celebration. "Trump has chickened out" quickly became a trending topic on Weibo.
China’s economic and political trajectory in the years ahead will depend less on U.S. decisions and more on how Beijing addresses its domestic challenges. The trade war has become more than a contest over tariffs; it is a moment of reckoning for China.
The real battle lies in transforming internal weaknesses into strengths—a task Xi Jinping must now undertake with both urgency and care.